Bloomberg News

Chinese-Owned Company Sues Obama Over Wind Farm Project

October 02, 2012

A Chinese-owned company sued President Barack Obama for barring its Oregon wind-farm project as a national security risk, claiming the order violates its constitutional rights.

Ralls Corp., a Delaware-based company owned by two executives of China’s biggest machinery manufacturer, added the president yesterday to a lawsuit filed Sept. 12 that challenged a ruling by the Committee on Foreign Investment in the U.S., known as CFIUS, blocking the project.

“By failing to provide Ralls with sufficient notice and opportunity to be heard prior to prohibiting its acquisition of the wind farms and imposing extraordinary restrictions on the use and enjoyment of its property interests, CFIUS and the president have unconstitutionally deprived Ralls of its property absent due process,” the company said in the amended complaint.

The challenge to Obama comes amid campaign charges by Republican challenger Mitt Romney that Obama has been too soft on China. Obama’s order blocking Ralls from acquiring the wind- farm assets was the first time in 22 years a president has blocked a transaction on national security grounds.

Ralls, which is owned by executives of China-based Sany Group Co., was seeking to place Sany-made wind turbines at the Oregon installations after purchasing land and other rights earlier this year. The assets consist of four locations, all of which are near or within restricted Navy airspace, the Treasury Department, which heads CFIUS, said Sept. 28. The decision shouldn’t be viewed as a precedent for any other investment from China, Treasury said.

Navy Training

In the area around the sites, the Navy conducts training for bombing and electronic combat maneuvers and develops drones, according to the base’s website.

Obama ordered Ralls to remove all property and installations from its sites within two weeks and divest all of its interests in the wind-farm project within 90 days.

The amended complaint includes claims that Obama acted beyond the powers of the presidency.

“It’s going to be very difficult to get a judge to intervene, given that traditionally agencies are given a wide amount of discretion,” said Josh Zive, a lawyer with Bracewell & Giuliani in Washington who has handled CFIUS cases but isn’t involved in the Ralls transaction. “When it comes to the deference given to the executive branch on national security and foreign policy, the deference is even greater.”

‘Profound Faith’

Ralls continues “to show its profound faith in transparency and due process, and seeks only fair treatment under the law and the Constitution,” Tim Xia, a lawyer with Morris, Manning & Martin LLP, who represents Ralls, said in a statement.

Natalie Wyeth, a spokeswoman for Treasury, said the department believes the “lawsuit has no merit.”

CFIUS is an interagency committee headed by Treasury Secretary Timothy Geithner that reviews the national security implications of transactions that could lead to a non-U.S. citizen controlling a U.S. business. The heads of the departments of Justice, Homeland Security, Commerce, Defense, State and Energy, among others, sit on the committee. The panel’s recommendations can be enforced only by the president under the law.

CFIUS Order

Obama’s order replaced an interim one issued by CFIUS in July. CFIUS told the company to stop operations and keep out of development sites it bought near the Naval Weapons Systems Training Facility Boardman, according to Ralls’s lawsuit seeking to overturn the order.

CFIUS rulings are rarely referred to the president before being resolved some other way, according to a panel report to Congress covering the period from 2008 to 2010.

The last transaction blocked on CFIUS grounds was by then- president George H.W. Bush in 1990 in the proposed acquisition of MAMCO Manufacturing Inc., a maker of motors and generators based in Washington state, by China National Aero-Technology and Export Corp.

U.S. District Judge Amy Berman Jackson in Washington already said she can’t review the president’s decision because of the deference that she’s legally obliged to give the president on national security issues. She urged the government and Ralls to reach a deal.

Chinese Executives

Closely held Sany Group is the owner of China’s biggest machinery maker. Dawei Duan, Sany’s chief financial officer, and Jialiang Wu, a vice president of the group and general manager of Sany Electric Co., a group unit, own Ralls, according to court filings. The Shanghai-listed Sany Heavy Industry is Sany Group’s main listing entity. Sany is based in Changsha City in Hunan province.

Ralls bought the wind-farm assets without reporting the transaction to CFIUS, according to a U.S. filing in the case.

With the lawsuit, Ralls is “making a constitutional argument to be reimbursed for ignoring a statutory review where Congress granted the president the authority to unwind a transaction that threatens national security,” said Ivan Schlager, who heads the CFIUS practice for Skadden, Arps, Slate, Meagher & Flom LLP in Washington. “Now Ralls wants the U.S. taxpayer to pay for their decision to go forward? Good luck.”

The case is Ralls Corp. v. Committee on Foreign Investment in the U.S., 1:12-cv-01513, U.S. District Court, District of Columbia (Washington.)

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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